On April 11, Judge Michael Baylson of the U.S. District Court for the Eastern District of Pennsylvania became the first judge to grant summary judgment on the issue of whether UberBLACK drivers are employees or independent contractors under the Fair Labor Standards Act (FLSA). Judge Baylson concluded that Uber correctly classified the plaintiffs — drivers who provided “black car” limousine services for Uber — as independent contractors. Razak v. Uber Techs., Inc., No. 16-573 (E.D. Pa. 2018). The plaintiffs intend to appeal. Although the analysis of independent contractor classification is fact-intensive and varies depending on the type of claim asserted by the plaintiffs, gig economy employers will find the Razak opinion helpful in structuring their independent contractor relationships.
The Razak complaint was brought by three limousine drivers (on behalf of themselves and a putative class of drivers) who render services to Uber through Uber’s mobile application. The plaintiffs each owned and operated their own transportation companies. They entered into written contracts with Uber on behalf of their companies, which included a driver addendum. The contract and addendum provide that the drivers are employees of the transportation companies, not of Uber. They also contain other language supporting independent contractor status.
How the Uber App Works
Uber drivers who are ready to pick up passengers log in to the Uber app and indicate that they are online. They can accept or reject trip requests by either pressing an “accept” button or doing nothing, in which case they have rejected the request. If a driver rejects three trips in a row, he or she is automatically moved to offline status, where he or she remains until going back online. Drivers may go to any location to be available for trips (except that there are special rules for certain locations like airports and train stations). While drivers are online, they are free to engage in personal activities, such as phone calls and business for their own transportation companies.
The Parties’ Positions in Razak
The drivers, who are classified as independent contractors, argued that they are legally employees and, therefore, should have received overtime pay under the FLSA and Pennsylvania law. According to the drivers, they are employees because Uber controls the way in which they perform services when they are on the Uber app, they do not have specialized skills, they are required to drive certain types and colors of cars, they perform an integral role in Uber’s business, and many have driven for Uber over a long period of time. Uber asserted that the plaintiffs are independent contractors because they operate their own businesses, they are free to work for other companies, they can hire their own workers, they can work when and how often they want, and they pay their own substantial expenses.
In evaluating whether the plaintiffs are employees under the FLSA, the court examined the factors articulated by the Third Circuit Court of Appeals in Donovan v. DialAmerica Marketing, Inc., 757 F.2d 1376 (3d Cir. 1985), for determining whether a worker is an employee under the FLSA: (1) the degree of the alleged employer’s right to control the manner in which the work is to be performed; (2) the alleged employee’s opportunity for profit or loss depending on his managerial skill; (3) the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers; (4) whether the service rendered requires a special skill; (5) the degree of permanence of the working relationship; and (6) whether the service rendered is an integral part of the alleged employer’s business. The Donovan opinion instructed courts to look at all of the circumstances and not rely on any particular factor. In analyzing the six Donovan factors, Judge Baylson found that four weighed heavily in favor of independent contractor status and only two supported employee status, neither of which the court found to carry much weight.
Alleged Employer’s Right to Control the Manner in Which the Work Is to be Performed
The right to control how work is performed is generally viewed as the most significant factor in determining independent contractor status. The court concluded that Uber did not have the right to control the manner in which UberBLACK drivers performed services.
The court observed that the written agreements between the plaintiffs and Uber, while not dispositive, illustrate a lack of control by Uber. For example, the agreements provide that the customers and drivers “retain the sole right to determine when, where and for how long each of them will utilize the Driver App for the Uber Services” and that Uber had no right to require a driver to display the company’s name on the driver’s vehicle or to wear anything with an Uber logo.
The court was not persuaded by the drivers’ arguments that Uber exercises or has the right to exercise substantial control because it can terminate a driver’s access to the Uber app; it can deactivate drivers for cancelling trips, for falling short of the required driver rating, or for soliciting payments outside of the Uber app; and it can limit the number of consecutive hours that a driver may work under its drowsy driving policy. Instead, the court focused on the facts that drivers are permitted to use subcontractors to drive (in which event Uber paid the plaintiffs’ businesses rather than the subcontractors directly), that the drivers can work for Uber’s competitors, and that the drivers can determine their own working hours and days and can work as often or as seldom as they choose. Based on all of these considerations, the court concluded that the first Donovan factor “weighs heavily in favor of ‘independent contractor’ status.”
Alleged Employee’s Opportunity for Profit or Loss
The court similarly concluded that the second Donovan factor strongly favored independent contractor status. Drivers can work whenever they choose and can decide whether to accept rides from Uber, from a competitor, or from private clients based on where their opportunity for profit was greater. The court disregarded the drivers’ argument that Uber determines through its app whether an individual driver receives a trip request, and that Uber decides how much passengers are charged. Because a driver has the sole discretion to decide when to log in to the Uber app and earn profit, Uber is not in control of the driver’s opportunity to earn profits.
Alleged Employee’s Investment
Noting that the drivers essentially conceded the factor of employee investment, the court concluded that this factor strongly supported independent contractor status because the drivers are required to obtain their own vehicles.
The court recognized that driving is not by itself a special skill, although UberBLACK drivers are expected to replicate the limousine experience, which requires a high level of customer service. The court concluded that this factor supported employee status, but did not carry much weight.
A working relationship that has a degree of permanence typically suggests employee status, rather than independent contractor status. Although many of the drivers had provided services to Uber for several years, the court observed that the long-term nature of the relationships did not establish permanence when the drivers were in control of how long they wished to work for Uber. Because the drivers can work as little or as much as they want, the court concluded that the relationship permanence factor weighed heavily in favor of independent contractor status.
Integrality of Service
Finally, the court found that the drivers are an integral part of Uber’s business and, therefore, the integrality of service factor supports employee status “to a slight degree.”
Based on its analysis of the six Donovan factors and the totality of the circumstances, the court concluded that the drivers had not proved their burden of showing that they are employees. In reaching its conclusion, the court relied heavily on the independence and control that UberBLACK drivers are able to exercise, especially in their freedom to determine when and how much to work and their ability to conduct business for their own companies and for competitors.
In Razak, the court easily determined that the workers were independent contractors under Uber’s business model. The Razak decision is good news for gig economy employers and follows the recent victory for GrubHub in a case under California employment laws. A California district court found that GrubHub drivers were classified correctly as independent contractors because, among other reasons, GrubHub did not control when and whether the drivers worked and the drivers could also work for competitors. Lawson v. GrubHub, Inc., No. 15-5128 (N.D. Cal. 2018). A contrary ruling in Razak (or GrubHub) would have had significant negative ramifications for the gig economy business model, which depends on using independent contractors to save employment-related expenses.
Misclassification claims by drivers and other individuals who perform services by accepting assignments through an internet-based platform are likely to continue, and gig economy employers should review their independent contractor relationships carefully to maximize the existence of factors supporting independent contractor status.